Finance Minister Pranab Mukherjee today announced facilitating setting up of dedicated infra debt funds through special purpose vehicles for attracting foreign investment funds in the infrastructure sector.
"To attract foreign funds for financing of infrastructure ,I propose to create special vehicles in the form of notified infrastructure debt funds," Mukherjee said while presenting the Budget for 2011-12.
According to the Budget Memorandum, the government is aiming at creation of more than one such debt fund, which will provide low-cost funds from abroad for financing growth of the infrastructure sector.
"In order to augment long-term, low-cost funds from abroad for the infrastructure sector, it is proposed to facilitate setting up of dedicated debt funds," the Budget Memorandum said.
The income of such funds will be exempted from tax. However, interests paid by such debt funds to non-residents will be charged five% income tax, the Memorandum said.
In June 2010, an expert panel headed by HDFC chief Deepak Parekh had recommended setting up such a fund with an initial corpus of Rs 50,000 crore to resolve financial needs of the sector.
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However, the Finance Minister did not mentioned any specific corpus for the funds, while presenting his Budget proposals.
"Planning Commission was keen on infra debt fund notification. Enough money and policy initiatives have been put towards infrastructure to achieve rapid growth needed for the sector," Deputy Chairman of the Plan Panel Montek Singh Ahluwalia said.
The fund, aimed at providing longer-term capital to infrastructure, could provide a boost to the public-private partnership (PPP) projects, thereby, pushing investments in key areas like roads, ports and power among others.
According to the Economic Survey 2010-11, 293 projects or over 52% of the ongoing 559 infrastructure projects are running behind schedule as on October 2010 and steps are required to accelerate the pace of infrastructure development further.
Simultaneously, the survey also said that investment in the key infrastructure sectors like power, roads, ports and airports among others, is expected to increase to 8.37% of the GDP or over Rs 4 lakh crore in 2011-12.
For this, the government today proposed to spend over Rs 2.14 lakh crore as budgetary support for the sector and rest of the money is expected to be invested by the private sector during the next fiscal.
Moreover, the government proposes to raise investment in infrastructure sector to $1 trillion in the Twelfth Five Year Plan (2012-17) from $500 billion in the current plan.